The purpose of the crush sleeve is to set pinion bearing preload. It has nothing to do with float. If the sleeve has been further crushed as described, it MUST be replaced. You will cook the pinion bearings if you don't.

A sleeve that is crushed too far will have excessive bearing preload. This is very bad.

You need to replace the pinion seal, crush sleeve and nut. They are all one time use. This is straight forward. The manuals are on line and on the ERA web site.

Remove the ring gear install new crush sleeve and set the correct bearing preload and then finish putting it back to together. The rest of the shims should be fine since nothing else has changed. I like to use my floor jack handle to get enough torque to crush the crush sleeve. I am not man enough to do it with just my breaker bar.

You simply tighten the pinion nut in small increments and check bearing preload with a inch pound torque wrench. Preload is the torque required to rotate the pinion only.

Replace the O rings on the stub axles while you are at it. They are cheap and leak from age.